Greenspan Set for Tour, Forum on South-Central

Far from his usual path in Washington and Wall Street, Federal Reserve Board Chairman Alan Greenspan this morning is expected to stride through the streets of South-Central Los Angeles before breakfasting with inner-city business owners and speaking publicly about a subject he rarely comments on: community reinvestment.

Greenspan’s unusual visit comes at the invitation of Rep. Maxine Waters (D-Los Angeles), who is holding an extraordinary gathering today of the nation’s banking regulators, chief executives of California’s top financial institutions and community activists in South-Central--the heart of the Los Angeles riots in 1992 and a place long viewed as underserved by banks and other major corporations.

Waters, a member of the House Banking Committee, has long been a vocal critic of the industry’s lending in the inner city, and her Washington-style forum has put some bankers on the defensive. Interviews and advance copies of remarks suggest that the half-day session, at the Museum of Science and Industry, will air criticisms, particularly about business lending and regulatory constraints. But there probably will be plenty of praise for the strides made in the inner city.

“It’s dramatically better,” said Eugene Ludwig, comptroller of the currency, who enforces the 20-year-old Community Reinvestment Act (CRA) aimed at discouraging redlining and promoting lending in low-income areas. As an example, Ludwig said in an interview last week, home mortgage loans in low- and moderate-income parts of the Los Angeles area surged 52% from 1994 to 1996--the last year for which the data are available. That’s far better than the average for California or the nation, he said.

But Ludwig, who is making his fourth visit to South-Central in five years, acknowledged that a number of problems remain, not the least of which is the absence of bank branches in the inner city, a fact that the walking tour is certain to highlight.

Greenspan, Ludwig and Ellen Seidman, director of the Office of Thrift Supervision, are expected to start at Vermont and Manchester avenues. Waters has lived near that corner for a decade, and the view from there isn’t pretty: a smattering of mom-and-pop stores and plenty of vacant land, scars from the riots. More than a decade ago, the corner had three bank branches, but they disappeared after mergers and consolidations. There are no supermarkets or family restaurants in sight either, Waters said.

“The inner cities, including South-Central, are not sharing in the economic growth and well-being we’re seeing in Middle America and Wall Street,” said Waters, a four-term congresswoman. “I want Greenspan to do some interpretation about why we have this situation.” She added: “I hope I inspire Greenspan to say, ‘We’ve got to do more to help.’ ”

It’s anybody’s guess what Greenspan will say, if anything. As Fed chairman, he controls the money supply of the world’s richest nation, and his sparse, scrutinized words have been known to shake the global markets. Besides action on regulatory matters, Greenspan could exert influence on bankers on most any subject.

But he has said very little publicly about community reinvestment, although he has been known to meet privately with community organizations. His press office in Washington couldn’t recall Greenspan ever having taken a walking tour of this kind, although three years ago he took a brief bus tour of poor neighborhoods in Pittsburgh, departing midway without a word, according to press accounts.

One area that many inner-city advocates hope Greenspan will address is the Fed rule that prohibits banks from identifying gender and race in making business loans, a practice that is allowed in making home mortgages. Ludwig and others have repeatedly urged Greenspan to allow lenders to voluntarily collect race and gender information as a way to better track and serve minorities. But the Fed has adamantly resisted.

“That’s an area where we have strong disagreement,” said Bob Gnaizda of the Greenlining Institute, a San Francisco-based coalition. In 1995, the Greenlining Institute advocated the change in a newspaper ad headlined, “Who’s Afraid of Alan Greenspan?” But Gnaizda said he is not confident of any imminent change on the issue from Greenspan or the Fed.

Business lending will probably garner much of the attention during the hearing, in which Greenspan, Ludwig and Seidman will testify. They will be followed by senior officials of Bank of America, Wells Fargo Bank and Washington Mutual Bank--the state’s three largest banks--then heads of several community banks and various community organizations.

Most participants agree that California lenders in particular have made significant gains in the last few years in providing mortgages to lower-income areas, which in part is the result of demographic shifts and the demand by first-time minority homeowners, notably Latinos. In Waters’ district, which also includes Inglewood and Hawthorne, the volume of home loans surged by 63% from 1994 to 1996. And in South-Central and other inner-city neighborhoods, public and private partnerships have spurred the development of a number of multifamily housing projects.

Comparable multiyear statistics on business lending aren’t available from regulators, but many believe that the record for business and commercial lending in the inner city isn’t nearly as impressive. One reason Waters said she called the hearing was to get an accounting from the state’s largest lenders that recently made public Community Reinvestment Act pledges to extend billions of dollars of loans to the inner city.

The biggest of these, by B of A, pledged $140 billion over 10 years for lower-income and minority borrowers--half of that in small-business loans. Wells Fargo, as part of its takeover of First Interstate Bank in early 1996, promised $45 billion over 10 years, and Seattle-based Washington Mutual, which recently acquired Great Western Bank, made a 10-year commitment of $75 billion in loans, mostly home mortgages.

Karen Wegmann, Wells Fargo’s executive vice president of corporate community development, who is planning to give the bank’s statement at the hearing, said Wells is already ahead of its timetable in fulfilling its pledge, having made more than $10 billion in Community Reinvestment Act loans in the bank’s 10-state area. The Los Angeles area, she said, accounted for 27% of that, with South-Central receiving $78 million, although Wells does not have a branch in South-Central, an area of about 45 square miles.

In addition, Wegmann said that 1996 small business data--which recently became public for the first time--show that Wells Fargo is the nation’s top small-business lender in low-income communities, with 113,115 loans outstanding. She said Wells is talking to an independent supermarket about establishing a branch in South-Central, although she would not provide further details.

Despite those figures, Waters and some others are concerned that banks focus too much on the very-small business loans, and not enough on bigger financing deals and economic development in a larger sense. Wells and other banks have boosted business loans in the inner city primarily by offering consumer-type loans of less than $50,000 through a quick, credit-scoring system that is similar to what is used by consumer credit card issuers. About 80% of B of A’s $70-billion business-loan commitment is expected to come in loans of $50,000 or less.

“Banks don’t yet have the confidence in the inner cities to make substantial, concentrated investments,” complained Waters. “You can’t change communities with lots of loans of $50,000 and under,” she said, adding that most of the South-Central business owners she invited to the forum are not start-ups but established entrepreneurs who could use million-dollar-plus loans.

Moreover, critics say credit-scoring--which is also used widely for mortgage lending--is too rigid and biased. For small business loans, credit scoring assigns points based on such factors as three-year financial statements and management of checking accounts.

“Credit scoring is going to come into heat at this hearing,” said one banker, who added that African Americans generally have a poorer record of checking account management than other groups. The banker said many businesses in South-Central just aren’t ready for larger loans. “If the math doesn’t work, then it takes a leap of faith, and a leap of faith in this business is a leap to death,” the banker said.

Alan Fisher, director of the California Reinvestment Committee, a coalition of dozens of grass-roots organizations that will be testifying, said he would not underestimate the impact of the $50,000-type loans to small businesses. “They’re more accessible than they used to be,” he said.

“One of the things I want to say at the hearing,” Fisher added, is “let’s not just focus on those who have made CRA commitments. Let’s put pressure on hundreds of banks who have not made them.”

Ludwig, enforcer of the Community Reinvestment Act, said he doesn’t care whether financial institutions make public commitments.

“These public pledges are fine things, but it’s not public pledges that we look at or care about. It’s what they do,” he said, noting recent changes in the act that will now rate banks for actual lending performance rather than such things as meeting with community groups. Ludwig’s office has long been criticized for giving virtually every major financial institution an outstanding or satisfactory rating, but he said that may change with the new rating system.

At the hearing, Ludwig said he would focus on several things, including the need for public-private partnerships that could spur larger commercial projects and address the community’s need for such things like supermarkets.

Among other topics that are expected to be taken up at the forum include whether Community Reinvestment Act requirements would apply to insurance companies and others that have recently sought banking charters and how to help inner-city residents comply with the federal law that will in the next couple of years require checks to be made by automated deposits.

The forum is not a formal congressional hearing, but members of the House Banking Committee are scheduled to attend, and Waters said she hoped its substance could be a basis for further legislative analyses and action.